Carl Icahn sent his howler to the Yahoo
board (full text below). Lots of fun we're-mad-as-hell
rhetoric--the board's actions have been "insulting" and
"deceitful"--and one actual constructive point:

Icahn suggests that, as a way of luring Microsoft back to the
table, Yahoo rescind the $2.4 billion employee bonanza severance plan
that Jerry & Co. implemented to create a roadblock to a
Microsoft takeover.

Icahn goes to great lengths to feign shock at the outrageous
details of this plan (some of which were revealed in scandalous
color in the lawsuit that was unsealed two days ago). Most of the
key details, of course, have been public knowledge since the plan
was announced. Also, since the "$2.4 billion" value assumes that
every Yahoo employee will quit, the actual cost to Microsoft from
the plan is far less, probably in the hundreds of millions.
Still, eliminating the plan would make Yahoo less expensive for
Microsoft.

This said, Icahn's letter does mark the first constructive
suggestion he makes for getting Microsoft back to the table
without giving the company away. Striking the severance plan
would make Yahoo less expensive. It would also demonstrate
Yahoo's commitment to working with Microsoft during the
regulatory approval process. In so doing, it would give Microsoft
a way to save face but still pay $33 for Yahoo.

Importantly, even Icahn admits that a sale to Microsoft might now
be a long shot:

despite your actions to date, there is still some possibility
that you can resuscitate a Microsoft offer for the company.

"Some possibility." Even with the severance-plan recission,
hardly sounds like a lay up.

Carl
Quotes:

- I am amazed at the length Jerry Yang and the Yahoo
board have gone to in order to entrench their positions and keep
shareholders from deciding if they wished to sell to
Microsoft.

- Until now I naively believed that self-destructive
doomsday machines were fictional devices found only in James Bond
movies. I never believed that anyone would actually create and
activate one in real life. I guess I never knew about Yang and
the Yahoo Board.

-I and many of your shareholders
believe that the only way to salvage Yahoo in the long if not
short run is to merge with Microsoft. ["Salvage"--gotta like
that]

I have long been cynical about the effectiveness of many of the
boards and
CEOs in this country and as a result the inability of our
companies to compete.
I have constantly complained about how far CEOs and boards will
go in order to
retain their jobs, yet even I am amazed at the length
Jerry Yang and the Yahoo
board have gone to in order to entrench their positions and keep
shareholders
from deciding if they wished to sell to Microsoft.

According to details in a complaint that I became aware of
yesterday
(details Yahoo fought to keep under seal), Jerry Yang and a
majority of the
board went to inordinate lengths to sabotage a Microsoft bid. The
complaint
states: "Viewing employee retention as Microsoft's Achilles heel,
Yang
engineered an ingenious defense creating huge incentives for a
massive employee
walkout in the aftermath of a change in control. The plan gives
each of Yahoo's
14,000 full-time employees the right to quit his or her job and
pocket generous
termination benefits at any time during the two years following a
takeover, by
claiming a "substantive adverse alteration" in job duties or
responsibilities."
The damage to Microsoft "is compounded by the fact that Yahoo's
thousands of
engineers, known as "Technical Yahoos!," have detailed job
responsibilities and
qualifications."

Most importantly, Microsoft might never be able to trust a CEO
and board
who, while claiming to be negotiating in good faith, went behind
their back and
adopted a "plan" which not only sabotages any Microsoft
acquisition but went so
far as to completely disable its own ability to rescind the
"plan" as long as
Microsoft's offer remains pending. Until now I naively
believed that
self-destructive doomsday machines were fictional devices found
only in James
Bond movies. I never believed that anyone would actually create
and activate one
in real life. I guess I never knew about Yang and the Yahoo
Board. In my
opinion, it will be extremely difficult for Microsoft or other
companies to
trust, work with and negotiate with a company that would go to
these lengths.

It is insulting to shareholders that Yahoo for
the last month has told us
that they are quite willing to negotiate a sale of the company to
Microsoft and
cannot understand why Microsoft has walked away. However, the
board conveniently
neglected to inform shareholders about the magnitude of the plan
it installed
which made it practically impossible for Microsoft to stay at the
bargaining
table. Could this have been the problem?

Even more deceitful are Yahoo's actions toward
its own employees, for whom
you claimed to have set up the "plan". Management neglected to
mention to these
same employees that Microsoft in its proposals had earmarked $1.5
billion of
retention incentives (representing over $100,000 per employee)
meant to allay
any employee concerns.

Ironically, according to the complaint, this is not the
first time that
Yahoo has denied shareholders the opportunity of selling to
Microsoft at a large
premium. According to the complaint, in January 2007
Microsoft offered to
purchase Yahoo at $40 per share but the company rejected that
proposal. On
January 31, 2008, Steve Ballmer emailed a letter to Jerry Yang
and Roy Bostock
making a new proposal of $31 per share. The letter recounts
Microsoft's prior
efforts to acquire Yahoo and noted that Microsoft had given Yahoo
time to
implement business strategies designed to turn the company
around. These
strategies obviously didn't work. The letter went on to state:
"Our proposal
represents a 62% premium above the closing price of Yahoo! common
stock of
$19.18 on January 31, 2008." Yahoo not only turned down this
proposal but
sabotaged it. An article in CNET News cited in the complaint sums
it up by
stating, "Yahoo may indeed agree to Microsoft's [offer], but it
will be over
Jerry Yang's dead body".

I and many of your shareholders believe that the only way
to salvage Yahoo
in the long if not short run is to merge with Microsoft.
However, because of HSR
considerations, to complete a merger of this magnitude will take
a period of
time. Even if by some stretch of the imagination the Yahoo board
finally
determines to do the rational thing and sell the company, I fear
that, in light
of Yang and the board's recent actions in response to Microsoft's
overtures, it
may be too late to convince Microsoft to trust Yang and the
current board to run
the company during that period while Microsoft sits on the
sidelines with $45
billion at risk. Therefore, the best chance to bring Microsoft
and Yahoo
together is to replace Yang and the current Yahoo board with a
board that will
negotiate in good faith with Microsoft and in whom Microsoft will
have trust to
operate the company during the long period between signing and
closing.

You stated in a press release yesterday that, "Yahoo's board of
directors
including Jerry Yang has been crystal clear that it would
consider any proposal
by Microsoft that was in the best interests of its shareholders."
However this
is not crystal clear to me. You have allegedly turned down a $40
offer. You have
turned down and sabotaged a $33 offer. Instead, you appear
willing to negotiate
an "alternative" deal that in my opinion will be worth less than
$33 but will
entrench the board and Jerry Yang. I understand how these actions
are in the
best interests of management and a board whose members each
receive $40,000 per
month for several days work, but it is hard for me to understand
how these
actions are in the "best interests of the shareholders."

However, despite your actions to date, there is still some
possibility that
you can resuscitate a Microsoft offer for the company. The board
can rescind the
"severance plan" that is the largest impediment to a Microsoft
deal. You
currently can do this because Microsoft withdrew their bid 30
days ago. It is
time for you to stop misleading your shareholders with respect to
Microsoft. It
has been reported today that when asked to talk about the
Microsoft bid, Sue
Decker indicated that Microsoft made an offer which Yahoo's board
didn't feel
was at an attractive enough price. However, one doesn't have to
be a rocket
scientist to realize there is a simple method to possibly achieve
a higher
price. Simply rescind the poison pill "severance plan", which
would free up
approximately $2.4 billion and possibly even more which could be
added to the
bid. It is also time to admit to your shareholders that the
severance plan was
not done for your employees (who you conveniently neglected to
inform that
Microsoft had earmarked $1.5 billion in retention incentives
for), but rather
was done simply as an entrenchment device and to impede a
Microsoft bid. If you
are not completely disingenuous in your protestations concerning
doing "the
right thing" for shareholders, you should rescind the severance
plan
expeditiously and determine if Microsoft is still willing to
purchase our
company and thereby create a true competitor for Google. I can
only hope that
you will finally do what is in the "best interests of the
shareholders."

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Carl Icahn calls Jerry a liar and demands that he rescind the $2.4 billion severance bonus plan he concocted to fight off Microsoft. This is actually a constructive suggestion, one that might make a deal more likely.